Modeling the Macroeconomic Impacts of Natural Disasters

Description

Each year, more than 700 major natural catastrophe events shatter lives, destroy assets, and disrupt communities across broad geographic regions, particularly in developing countries. What impact do these natural disasters have on the development of poor countries? It is well known that natural catastrophes cause sharp increases in poverty; what is uncertain is the extent of their long-term impact on the economic viability of developing nations.

The impact of natural disasters depends on two factors: the magnitude of the direct losses due to the event and the economic resilience of the country at the time the event strikes. A number of studies have examined the impact of catastrophes on a specific countries after an event occurred (for instance, 'Understanding the Economic and Financial Impacts of Natural Disasters', Benson & Clay, 2004). Alone, however, a post-event analysis cannot capture the impact of chronic exposure to catastrophic events in that area. Absent adaptive behavior, each catastrophe renders the country more vulnerable to the next.

To estimate the economic impact of chronic exposure to natural disasters, one must first measure both the expected severity and the expected frequency of catastrophic events. One must then develop a methodology to integrate this loss exposure with the expected macroeconomic conditions of the country when the catastrophes strike. This process provides a tool to understand the potential chronic impact of catastrophes on the long-term development of a country and to incorporate catastrophes in the planning process.

Outputs & events

Publication

Modeling exercises were undertaken in Argentina, Honduras and Nicaragua. Swiss Re contributed the necessary data, the World Bank contributed its model used to project economic growth, and the International Institute for Applied Systems Analysis (IIASA) performed the analysis. The report, 'Catastrophes and Development - Integrating Natural Catastrophes into Development Planning'' was published in June 2002. Its findings were disseminated within the World Bank and other development organisations to promote the integration disaster risk and potential losses into development planning.